Refinance to a Fixed-Rate Mortgage

Time to refinance?

If you have an adjustable-rate mortgage (ARM) loan that recently has adjusted, you may want to talk to us about that change and how it affects your monthly payment.

How does an adjustable-rate mortgage (ARM) work?

Like many homebuyers, you may have been attracted to the low initial interest rate of an adjustable-rate mortgage (ARM). While adjustable-rate mortgages may have lower initial interest rates than fixed-rate mortgages, the initial interest rate is only for a set period of time.

ARM Features

The interest rate on an ARM can rise or fall after the fixed period based on market or index rates while the interest rate of a fixed-rate mortgage does not change during the life of the loan.

ARMs have an initial fixed- rate period, when rates and monthly payments may be lower than fixed-rate loans.

When the initial fixed-rate period ends, the monthly payment adjusts based on the type of ARM loan you have. Your interest rate (and monthly payment) will rise or fall based on the market rate or index.

Tip

Refinancing may be an option for you to consider if your loan is adjusting to an interest rate that's higher than the current market rates.

What should I know about refinancing my current ARM loan?

In some situations, an adjustable-rate mortgage may be a good choice for you, but keep in mind that the interest changes at a predetermined time and may change every year.

Reasons to consider keeping your existing mortgage

If interest rates are low, your ARM's interest rate and monthly payment could go down. Your lender will notify you about any changes in rate or payment.

If the difference in your ARM's adjusted interest rate and the rate on available fixed-rate loans is small, consider the number of reduced monthly payments it will take to offset the costs of refinancing.

If you're planning to sell your home in the near future, it may be less costly for you to accept your ARM's payment adjustment, since you may not recoup the closing costs often associated with refinancing before you move.

ARM refinancing options

You may want to consider refinancing to a new ARM if you can match the amount of time you think you'll own your home with the new ARM's initial fixed-rate period. Find out about Wells Fargo's adjustable-rate loan options.

If you expect to remain in your existing home for a longer period of time, a fixed-rate mortgage protects you from rising interest rates and has fixed monthly principal and interest payments for the entire mortgage term.

Fixed-rate mortgage features

A shorter loan term provides faster equity growth and requires less total interest payments but may have a higher monthly payment.

For both long-term and short-term loans, you can manage your budget by using an automatic payment plan that can be timed to your pay schedule. Learn more

What are the benefits of refinancing?

When interest rates are low, you might consider refinancing your mortgage. Refinancing may allow you to replace your current loan with a new mortgage that has better terms. Here are some of the potential benefits of a refinance.

Increased cash flow

With a lower payment, you can use the extra funds for retirement savings, paying other debts, saving money for college, or other purposes.

Potential to switch to a different loan type

If you have an adjustable-rate (ARM) or a balloon mortgage, reduced interest rates may make a fixed-rate mortgage more desirable, especially if you want the stability of an interest rate that does not change over time.

If you have a long time left on your mortgage, lower interest rates may make it possible to switch to a shorter-term mortgage.

You can pay the principal balance down and build equity faster.

You may pay less interest over the life of the loan with a shorter term loan.

Opportunity to access the equity in your home

While you're lowering your interest rate, you may want to consider using the equity in your home to pay for major purchases or to make home improvements. This type of loan is known as a cash-out refinance.

A prepayment penalty if your current loan has a penalty for early payoff.

Other settlement charges such as appraisal, credit report, title search, and title insurance fees.

Tip

You may be eligible for a reduced reissue or refinance rate on your title insurance if the property's current policy was issued recently. Ask your title or closing agent if you qualify.

Assess how much longer you'll stay in the home If you plan on owning the home for an extended period of time, and the interest rates are 1/2% to 5/8% lower than your current rate, refinancing may be the right choice for you.

Determine your break-even point Your break-even point occurs when your savings from your new loan equals the cost of getting the new loan.

Additional considerations Keep in mind that you are starting over. Refinancing replaces your existing loan with a new one. If you refinance back to the same loan term on the new mortgage, you may pay more additional interest than you would if you refinance for a term that is the same as or shorter than that of your original loan.

What home financing basics should I understand?

If you obtain home financing, you'll repay more than the amount you borrowed because the amount you repay is determined by several factors, including the interest and loan amount. Here are some terms you should understand.

Interest rate

The interest rate is the percentage of your loan amount we charge you to borrow money.

Interest rates are based on current market conditions, your credit score, down payment, and the type of mortgage you choose.

Discount points

One point equals 1% of your mortgage amount. If you qualify, you may be able to pay one or more points to lower your interest rate. A lower interest rate typically means lower monthly mortgage payments.

Points are usually tax deductible. Consult a tax advisor regarding tax deductibility. On refinances you may be able to finance points as part of your mortgage amount.

Origination charge

On a mortgage, this amount includes all charges (other than discount points) that all loan originators (lenders and brokers) involved will receive for originating the loan.

The origination charge covers items including fees, document preparation, and underwriting costs, and other expenses.

On refinances, if you qualify, you may be able to finance the origination charge as part of your loan amount.

Loan term

Your loan term is the amount of time you have to pay off your mortgage balance.

If you pay off your mortgage balance within a shorter term, you may pay less in total interest than with a longer-term mortgage.

Remember that interest rates only tell part of the story. The total cost of a mortgage is reflected by the interest rate, discount points, fees, and origination charges. This total cost is known as the annual percentage rate (APR), which is typically higher than the interest rate. The APR lets you compare mortgages of the same dollar amount by considering their total annual cost.

Monthly mortgage payment

Your monthly mortgage payment is typically made up of four parts:

Principal. The part of your monthly payment that reduces the outstanding balance of your mortgage.

Interest. The part of your monthly payment that goes toward the cost of borrowing the money.

Taxes. The part of your monthly payment that goes toward property taxes charged by your local government. We typically collect a portion of these taxes in every mortgage payment and hold the funds in an escrow account for tax payments made on your behalf as they become due.

Insurance. The part of your monthly payment that pays for homeowners or hazard insurance, which provides protection against losses from property damage due to wind, fire, or other risks. Like taxes, insurance costs are usually collected and paid from an escrow account.

Depending upon your property location, property type, and loan amount, you may have other monthly or annual expenses such as mortgage insurance, flood insurance, or homeowner association fees.

Video - The components of a mortgage payment

Watch this video to understand what makes up a typical mortgage payment - principal, interest, taxes, and insurance - and how they can change over the life of the loan.

How will you evaluate my home financing application?

When you apply for home financing, we generally use these four main criteria to assess your application.

Income

Do you have a reliable, continuing source of income to make monthly payments?

Income can come from primary, second, and part-time jobs, as well as overtime, bonuses, and commissions.

You may use other sources of income if you want them considered for payment, provided they can be verified as stable, reliable, and likely to continue for at least three years. Some examples include retirement or veteran's benefits, disability payments, alimony, child support, and rental or investment income.

Mortgage program guidelines vary, but a good rule of thumb is to keep your housing expense level at or below 28%.

Even if you fall within the 28%/36% guidelines, make sure you're comfortable making your monthly mortgage, insurance, and tax payments, in addition to all of your other monthly payments. Remember that homes have other costs — such as utilities, maintenance, and repairs — that may not exist if you rent.

Find the Right Loan for You

We focus on your mortgage and home equity needs with the goal of delivering a straightforward and convenient application experience. Let us show you how easy it is to apply for mortgage or home equity financing with Wells Fargo.

The mortgage application process

How do I apply for a mortgage?

Gather essential information

When you apply for a mortgage you'll need to provide financial and property information to complete the application. This includes:

Once you apply, you'll receive important disclosures about your loan. If your loan is eligible to be tracked through your LoanTracker , you'll receive a notification from your home mortgage consultant.

Do I need to pay a fee to submit a mortgage application?

Yes, there is a fee to apply for a mortgage. Fees cover the cost of the credit check, verification of your financial information, and property appraisal. Fees vary by loan type and the location of the property. Your home mortgage consultant will provide specific fee details during the application process including when the fees need to be paid.

Is there an advantage to locking in my pricing?

If you want to avoid the possibility that interest rates will rise before you close on your home loan, you can lock in your loan pricing after your mortgage application is completed.

Are the features different for some types of mortgage loans?

Yes, if you're purchasing a newly built home, some additional loan options may be available.

Financing your newly built home

When you're purchasing a home from a builder, the mortgage application process is very similar to the process for buying an existing home. However, on loans for newly built homes, you also have the option of choosing our Builder Best® Extended Rate Lock program. Our exclusive Builder Best Extended Rate Lock program can help protect you from changing interest rates. With a required, non-refundable extended lock fee, you can lock down a range of interest rates and focus on what really matters most — building your new home.

What if interest rates rise?

Your interest rate range is protected. Lock in your interest rate range anywhere from 5 to 24 months depending on the type of loan you select.

What if interest rates drop?

You have options. You may be qualified for a one-time float down option to a lower rate or a different loan program.

The home equity application process

How do I apply for home equity financing?

To apply for home equity financing, you must own a primary residence, investment property, or vacation home. If you don't own property, you might want to consider a personal loan or line of credit instead.

It's easy, fast, and secure to apply:

Gather essential information

Before you start the home equity application, have the following information on hand:

Submit your application

It's easy to get started. Choose to work with us whichever way is best for you:

Online. Fast, easy and secure and it will take about 10 minutes. Get started.

Over the phone. Call your home mortgage consultant to get started.

Remember, if you have questions, our home equity specialists are ready to help. You can also track the status of your application 24 hours a day, 7 days a week with yourLoanTracker.

Do I need to pay a fee to submit my home equity application?

There is no fee to submit a home equity application. For closing cost fees, you can select the home equity closing cost option that meets your needs. If you're a Wells Fargo customer, you may also benefit from additional discounts.

What should I consider when applying for home equity financing?

Make sure your requested line of credit amount is between $25,000 and $500,000 (some state restrictions apply). For larger line amounts, please contact us.

Carefully evaluate how much you need. Your requested amount plus the existing mortgage balance and any other outstanding liens against your property should be less than 80% of your home's current value.

Help keep your application moving by submitting requested documents promptly. Learn more about documents we may request in our document library.

Do not make big purchases, take on additional debt, transfer large amounts or make large deposits unrelated to your loan, until after your closing.

Are the features different for other types of mortgage loans?

Yes, loans for newly built homes may have additional loan options and different requirements.

Financing your newly built home

Choose from a large variety of mortgage products.

With a required, non-refundable extended rate lock fee, you can lock in a range of interest rates from 5 months and up to 24 months depending on the loan product with our Builder Best® Extended Rate Lock program.

Your home mortgage consultant will help you find a loan option that works for you.

What can I do to help my home equity financing close on time?

Make sure you sign all relevant documents, get them notarized (as needed) and return them to us as soon as possible.

After your mortgage or home equity financing closes we provide a variety of ways to manage your account online. View account activity, transfer funds, make payments, and more — anytime, anywhere and at your convenience.

Manage Your Finances

If you are a service member on active duty, prior to seeking a refinance of your existing mortgage loan, please consult with your legal advisor regarding the relief you may be eligible for under the Servicemembers Civil Relief Act or applicable state law.

Terms: The line of credit has a draw period of 10 years plus 1 month, after which you will no longer have access to borrow funds and will be required to repay the borrowed balance within a 20-year term. There is a required minimum monthly payment of $100. The account is subject to application, credit qualification, and income verification; additional evaluation and verification criteria may apply. Your actual APR will depend upon your credit transaction and credit history and will be determined when a credit decision is made. For questions, please contact us at 1-800-668-4730.

The minimum draw on a home equity line of credit is $300 for properties in all states except Texas, where lines attached to homestead properties have a minimum draw of $4,000. If less than the minimum draw amount is available on the line, you may not draw again until the minimum amount is available. Texas homestead properties are limited to 80% combined loan to fair market value for home equity financing.

APR and Fees: The APR for a Wells Fargo Home Equity Line of Credit is variable and based on the highest prime rate published in the Western edition of The Wall Street Journal "Money Rates" table (called the "Index") plus a margin. The index as of the last change date of June 14, 2018, is 5.00%. As of July 20, 2018, margins range from 4.750% to -0.375% for lines of credit from $25,000 to $499,999 secured by owner-occupied properties with 70% combined loan-to-value. Corresponding variable APRs range from 9.75% to 4.625%. The minimum line of credit amount is $25,000. Your minimum APR, including discounts can't go below the 1% floor rate. Your variable rate won't increase more than 2% per year based on your anniversary date and will never be more than 7% higher than where you started (maximum of 18%).

There is a $75 annual fee, which is waived for the first year. Your annual fee may be waived thereafter; please talk to a banker for details. A $500 prepayment fee may apply if the account is closed within 3 years from account opening. Account opening fees, including applicable state or local mortgage taxes, may be paid to Wells Fargo, its affiliates or third parties and range from $19 to $18,000 depending on the property type, the state in which the property is located and the amount of credit extended. Hazard and, if applicable, flood insurance is required. There is no annual fee or prepayment fee for accounts secured by Texas homestead properties.

Relationship discounts: If you don't have an eligible Portfolio by Wells Fargo® account at the time you open your home equity line of credit, other lesser discounts may be available to you and will require automatic payments from a qualified consumer deposit account. To find out which accounts qualify for a relationship discount, contact a Wells Fargo banker. Relationship discounts cannot be combined.

Access checks are not available in Texas. ATM card access and the Enhanced Access® Visa® credit card are not available in Connecticut, New York, or Texas.

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Index rates Index rates are used to calculate rates on an adjustable-rate mortgage. They can be tied to a one-year treasury or the London Inter-Bank Offered Rate (LIBOR), depending on the loan product chosen.

Principal and interest (P&I) The 2 main components of your monthly payment. The principal portion reduces your loan balance, while the interest is your cost for using the principal. Your monthly payments may include taxes and insurance in addition to P&I.

Origination charge One amount for all charges (except points) to be paid to all loan originators involved in the transaction for originating the loan. Includes application, processing, and underwriting fees, and payments from the lender to the broker for origination.

Title insurance Insurance that protects the lender or homebuyer (if the homebuyer purchases an owner's coverage policy) against loss resulting from a title error or dispute.

Closing Costs Usually, you have the option to pay your closing costs or have us pay them (not available for financing over $500,000). You will have a lower interest rate if you pay them, and a higher interest rate if we pay them. For details, please contact us.

Appraisal A report made by a qualified person to estimate the value of a property, often used to help determine an appropriate loan limit. If you're purchasing, the appraised value usually needs to be equal to or greater than the home's purchase price.

Conditions Standard conditions include our receipt of homeowner's insurance policy, flood insurance if necessary, and an acceptable title insurance binder.

Closing agent This is the person or company that coordinates the execution of your closing documents. May be called by different titles in different states. Some common terms are attorney, title company, settlement agent, escrow company, notary, among others.